Analysis

Why technology need not be a big issue for air cargo

DEPENDING on how one looks at it, the air cargo business could be perceived as ‘lucky’ – because it continues to survive in an analogue state, requesting, moving, sifting through and stamping forests of paper, writes Thelma Etim.

One could argue that this approach has placed the sector on the horns of an unenviable dilemma of being ill-equipped to cope, or ride the technological tsunami which has been transforming and disrupting other world industries.

The varied technology-centred discussions, which took place at the World Economic Forum’s annual conference at Davos, Switzerland last month, are testament to the digital juggernaut gaining speed. Unlike air cargo, small to medium companies in other industries intent on making a profit amid global political and economic uncertainty are not operating in a bubble. They are not clinging on with their fingernails to outmoded paper-based formulae.

This barnstorming technological trend – now being referred to as the Fourth Industrial Revolution – could be construed as either exciting or frightening, depending on the size of an individual business and the transparency of its operations.

Yet, competitive advantage is carved from a combination of key factors, in particular resourcefulness, innovation, inventiveness and transparency. Therefore ejecting redundant processes and supplanting them with new automated data gathering systems is vital for survival and growth.

It’s technology – or opaque, paper-based processes

Despite all the warnings, the International Air Transport Association (IATA) routinely misses its own annual airline e-airwaybill (eAWB) electronic penetration targets, with 2016 no different from previous years. December’s eAWB status stood at 48.9 per cent, embarrassingly shy of the 56 per cent year-end target.

This is despite the fact that the air cargo industry began 2017 as it began last year – hamstrung by freight rates in free-fall, mass overcapacity, loaded with inefficiency and wastage – and yields and profitability under acute pressure.

More than 90 per cent of chief financial officers and airfreight bosses who took part in an IATA business confidence survey conducted by the airline association expect cargo yields to remain unchanged or to fall further over the year ahead.

Good news is on the horizon, according to Dr Zvi Schreiber, chief executive and founder of Freightos, which automates the freight operations of small- to mid-sized freight forwarders. The days of opacity casting its pall over airfreight and logistics businesses are numbered, he predicts. “As a whole, the logistics industry relies on fragmentation and siloed information. But, if nothing else, the Internet creates new levels of transparency,” he observes. “Shippers can [now] discuss forwarders on chat boards; they can increasingly compare prices online; they can read reviews on Yelp. In an era of an empowered customer, differentiation with outstanding service or price is critical.”

In light of these emerging new market conditions, how long can the air cargo community, in particular small and medium businesses, survive whilst operating opaque, paper-based processes? “They cannot,” asserts Schreiber. Cultural and organisational barriers will clip the wings of the air cargo industry. “Digitisation of cargo pricing and sales is now technically possible but still sorely lacking. I do expect that change is imminent though. The next generation of shippers won’t stand for offline service. Air forwarders and carriers now face the choice to either digitise… or lose business to someone who already is.”

The critical benefits of technology

Schreiber goes on to warn that global cargo is increasingly a commoditised business. “Service speaks loudly, but when a competitor with equal service can offer it together with the advantages of automation, then reduced profitability and customer abandonment become inevitable,” he adds.

Freightos conducted a survey of the top 20 forwarders in 2015 and 2016. Some of the findings are not only rather alarming but also confirm the industry is in dire need of remedial lessons on the benefits of technology. Of the forwarders surveyed, Kuehne + Nagel was the only business which instantly provided a freight quote days ahead of their rivals, and years ahead in technology.

The study discovered most of the forwarders’ processes are still manual. It took on average 101 hours (four days) to provide a simple, manual spot quote, 11 hours longer than in 2015, reveals Freightos. Following up the quote request took an average of 15 hours (seven hours in 2015). And, of the 20 forwarders, nine provided a quote only.

Freightos espouses that automation of the sales process – by reducing and removing errors and lowering the cost of sale – will significantly enhance the profitability of the freight services business.

Steve Hill, principal industry consultant at global software company Champ Cargosystems, believes digitisation across the air cargo industry may never fully materialise. “Full digitisation would require a paradigm shift in processes,” he observes. “Full digitisation may never be achieved due to the legislative requirements for certain consignments, or as deemed necessary by certain countries.”

Hill is keen to point out that IATA is sooner or later likely to reach a milestone in its e-freight battle by surpassing its 50 per cent e-AWB penetration mark for the first time. “My own opinion is that we have attempted to digitise the paper-trail so we have been trying to apply a transformational approach to a legacy process.

Managing the paper and digital

“This may be one of the reasons why this industry has been wrestling with the permanently perplexing problem – why for an industry, which operates some of the most sophisticated machines in the world – is still struggling to eliminate paper.”

Whilst IATA’s e-freight initiative is primarily aimed at digitising documents in the transportation cycle, “there are a host of other documents in the back office which could be ripe for dematerialisation,” Hill reveals. “Certainly when we hit 50 per cent e-AWB [penetration] this is probably the worst of both worlds, as the business has to cope in this hybrid state: managing the paper and digital. This has to be inefficient and therefore costly.”

Maybe this is why Hill suggests smaller firms will survive using paper-based operations because the airfreight industry will continue to condone it. “It still must be the case that some businesses, whether big or small, can still manage using paper. “Perhaps this is indicative that we have not approached this in the right way,” he reflects. “It still seems paper is tolerated and accepted, even if an ‘e’-alternative is available.”

Whilst air cargo’s marked outmoded approach towards new technology is a major hurdle, cost implications and the fear of managing widespread job losses as a result of introducing automation remain immense barriers to change.

So is there any way that the costs and the shock of technologically-transforming processes within a small-to-medium-sized air cargo business can be easily affordable and not terminally disruptive? Both Hill and Schreiber are positive about how firms can revolutionise their operations without financial pain.

“We already offer low-cost and comprehensive solutions to small and medium-sized [SME] forwarders, helping them to manage their complete business whether consignments are transported by air or other modes of transport,” Hill points out.” These solutions are cloud-based, so there aren’t any lengthy and disruptive implementation periods. “I’d say that ‘cutting’ an airwaybill electronically is not particularly disruptive, but the transmission electronically may still be new for some SMEs around the world, and here connectivity to airlines globally could be a transformational process for some.”

Freightos offers forwarders instant airfreight rates, along with door-to-door freight quotes, says Schreiber. “The good news is that the bar to entry for technology is far lower than it ever has been,” explains the CEO. “The same drive pushing air cargo providers’ customers online is forcing IT providers to make user ‘onboarding’ as easy as possible.

“Facebook, Gmail and Amazon built their empires by making it simple to start using new technology; B2B software is now following suit,” he continues. “The key is the openness to change and the foresight to do it before it’s a game of catch-up.”

Global adoption of a standard air cargo messaging system

However the question airfreight businesses should be asking themselves is not: can we afford to digitise? – but can we afford not to? It is for this reason that IATA’s recent announcement that its Cargo-XML messaging standard has been fully integrated into United Nations Conference on Trade and Development’s (UNCTAD) Automated System for Customs Data (ASYCUDA World) is such a milestone in the air transport industry’s mission to promote digitisation.

In the air cargo paper world, delays, duplication, inaccuracy, bribery and corruption are all hindrances to profitability and efficiency.

Glyn Hughes, global head of cargo at IATA, says this XML move has taken the industry a step closer to achieving the global adoption of a standard air cargo messaging system. “Having a standard air cargo digital messaging system between Customs authorities, airlines and other air cargo stakeholders is fundamental to enhancing efficiency, driving trade growth and maximising safety and security across the industry,” he says.

“IATA’s successful partnership with UNCTAD means that airlines, forwarders, shippers and border agencies in over 90 countries can now talk the same digital language.”

Cargo-XML makes it easier for airlines, forwarders and shippers to ensure that information being provided to Customs authorities is technically correct and is in line with the standards of industry bodies such as the World Customs Organisation and other regulators. It also facilitates Customs risk assessments for air cargo shipments and improves compliance with security regulations.

ASYCUDA’s reach – the system is currently used by more than 90 countries worldwide for their Customs procedures – facilitates the ease of doing business and is vital because corrupted, costly, bureaucratic, paper-based bottlenecks are one of the biggest blocks to international trade and are the enemy of the air cargo and logistics companies.

‘Single window’ technology

Cargo-XML’s integration will, for some businesses, eventually translate into profitability from new revenue streams.

Beyond ASYCUDA, the ‘single window’ – electronic data interchange between government agencies and other related parties – is also being adopted by a number of economies, according to the World Bank report. “The level of national digitalisation, specifically regarding cross-border trade, has been shown to have a significant impact on economic growth,” it reveals.

“Specifically, studies have found that an increase of an economy’s digitalisation score by just 10 per cent leads to a 0.75 per cent growth in GDP,” the study reveals.

Further research also demonstrates the positive impact of national single window systems on increasing the number of exporting firms and on improving international trade flows – again, an advantageous development for air cargo.

The report cites Costa Rica as an example where implementing streamlined procedures to process export permits through a single window have resulted in an increase of 22.4 per cent in the number of exporters. “Data shows that traders in economies with fully operational electronic systems [that allow for export and import Customs declarations to be submitted and processed online] spend considerably less time on Customs clearances.”

The result of implementing an electronic data interchange system in the Philippines, for example, illustrated that Customs custody times were reduced to six hours for ‘green channel’ shipments (the previous time frame was from six to eight days), it adds.

The green channel refers to electronic Customs clearances without routine examination of the goods, a system provided only to qualified traders and to products that meet eligibility requirements.

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